☕ Is Starbucks Brewing The Big Bucks?

Facebook's new launch, Shopify's recovery projection.

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☕ Starbucks: Brewing The Big Bucks?

Howard Schultz has been synonymous with Starbucks (SBUX). After steering the company through a dramatic turnaround during the Great Recession, he stepped away from daily activities exactly three years back. Starbucks is now brimming with optimism and that’s cause for cheer to the investors. (Tweet This)

Howard Schultz To The Rescue

Starbucks started in Seattle in 1971. When Howard Schultz joined the company in 1982, the company barely had touched double digits in terms of stores. On a trip to Italy, Schultz was very impressed with the espresso bars there and made it his life’s mission to bring that passion to America. He acquired Starbucks in 1987 when it had just 17 stores overall.

He took the company public in 1992 and established its overseas operations in 1996. During that decade, the number of stores grew at a CAGR of 45%. Clientele in Australia, South Korea, China, UAE, Saudi Arabia, and the UK among other locations started identifying Starbucks as the luxury coffee chain with exotic coffees, European Pastries, comfortable leather seats, and indie music.

After 13 years at the helm, Schultz stepped away from day-to-day management and things started going awry soon thereafter. Focus on coffee gave way to music recording, movie production, an entertainment office in Los Angeles… the list goes on. The result? Sales dipped and share price nose-dived ~80%. Starbucks was on the cusp of becoming yet another fallen angel.

In 2008, Schultz came back as CEO to effect a turnaround of gigantic proportions. Over 18K jobs were shed, ~1K stores were shuttered, the entertainment business was no more, and the focus shifted back to coffee. Starbuck’s trademark culture was resuscitated, the menu was diversified, and growth which was all but gone came back like never before. Over the next ten years, the share price jumped 700%.

It’s All In The Brew

With its back-to-basics approach to coffee, Starbucks is projecting a strong rebound for its coffee demand by 2022. By end of fiscal 2022, the coffee chain is forecasting growth of more than 20% as it laps weaker earnings growth. In 2023 and 2024, Starbucks expects to hit long-term growth targets, with adjusted earnings per share growth of 10% to 12%. It also helps that the pandemic is being overcome and vaccination rates are rising. The company expects revenue growth to be in the 10% range.

Tapping into the vegan trend, Starbucks has launched the Iced Brown Sugar Oatmilk Shaken Espresso and Iced Chocolate Almondmilk Shaken Espresso in March. Oatly, one of the leading non-dairy players in the US, has also partnered with Starbucks and its Oatmilk is now available across Starbucks menus in the US.

Starbucks is doing everything it can to become synonymous with coffee to people in different age groups from across the globe. If the current management team has learned the lessons taught by Schultz about unwavering focus on the product and the customer experience, it seems the shareholders will be sipping on returns going forward. At least until the aspirations for an Oscar surface again!

Market Reaction
SBUX ended the day at $112.27, up 0.02%. The stock is up nearly 9% this year.

Company Snapshot 📈

SBUX $112.27 +0.03 (0.02%)

Analyst Ratings (31 Analysts) BUY 61%  HOLD 39%  SELL 00%

Newsworthy 📰

Leaders: Shopify President says small businesses will lead the pandemic recovery in cities (SHOP -0.80%)

Competition: Facebook launches newsletter product bulletin, its substack rival (FB -1.05%)

Revival: Paychex CEO sees hiring rates picking up in September (PAYX +0.59%)

Later Today 🕒

  • Micron Technology Inc. Earnings (MU)
  • Constellation Brands Inc. Earnings (STZ)
  • General Mills Inc. Earnings (GIS)
  • 5:45 PM IST: ADP Employment Report
  • 7:30 PM: Pending Home Sales Index

Fun Fact of The Day 🌞

The new car smell is composed of 50 volatile organic compounds

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